Thursday, October 2, 2008

Establish General Electric Covered Calls

A new covered calls position was established today in the Covered Calls Advisor Portfolio(CCAP) as follows:

Established General Electric (GE) Covered Calls for Oct08:
10/02/08 Bought 200 GE @ $22.25
10/02/08 Sold 2 GE Oct08 $22.00 Calls @ $1.53

Given GE's $12B stock offering announced today at $22.25 and the strong likelihood that GE's offering is successful (given the fact that the underwriting consortium consists of the strongest banks Bank of America, Citigroup, Deutsche Bank, Goldman Sachs, JP Morgan, and Morgan Stanley), I now have increased confidence that the stock will be able to stay above the $22 strike price for the next 16 days until expiration. In addition, the implied volatility of the GE option was an extraordinarily high 76% when sold this morning thus making the GE option very attractive to sell and also the associated potential annualized return of 131.0% for the covered calls if exercised is especially attractive.

Annualized Return If Exercised (ARIE): +131.0%
Downside Breakeven Protection: 6.9%

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